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BAT Chairman Rebuffs Goldsmith Invitation to Negotiate Terms

August 21, 1989

LONDON (AP) _ BAT Industries PLC Chairman Patrick Sheehy on Monday rebuffed financier Sir James Goldsmith’s offer to negotiate the terms of his hostile $21 billion bid for the British conglomerate.

Sheehy also unveiled his company’s defensive strategy, aimed at convincing shareholders they will profit more by holding on to their BAT stock than by tendering it to Hoylake Investments Ltd., the investor group led by Goldsmith.

Underscoring that argument, BAT announced Monday its earnings for the quarter ended June 30 rose nearly 22 percent.

″The defensive plank is on the performance of the businesses,″ BAT Deputy Chairman Brian Garraway said as his company released a statement known as a defense document.

The document stated that, ″Since 1980, BAT Industries has delivered long term superior total returns to shareholders.″ It also emphasized the strengths of BAT’s businesses, which include tobacco, financial services, retailing and paper.

Hoylake, which also includes British merchant banker Jacob Rothschild and Australian entrepreneur Kerry Packer, responded that the document sidestepped issues such as the failure of BAT’s tobacco interests, strategic blunders in its retailing diversification and fundamental flaws in its conglomerate structure.

A takeover of BAT would be the world’s second-largest, after the $24.53 billion acquisition of RJR Nabisco Inc. by Kohlberg Kravis Roberts & Co. earlier this year.

On Sunday, Goldsmith wrote Sheehy, inviting ″you and your colleagues to sit down and negotiate with us an offer, all aspects of which are open to negotiation.″

The approach could be an indication that the bidding group is willing to offer some cash.

However, Sheehy said Monday cash would not sway him. He said he was refusing to meet with Goldsmith because, ″His objectives are totally different to ours. He wants to destroy the company.″

Hoylake has that if its offer succeeded, it would sell off all of BAT’s non-tobacco businesses. It has argued that BAT shareholders would get far better value if BAT’s assets were ″unbundled.″

″There’s going to be no meeting of minds,″ Sheehy said. ″If you start with two polarized objectives then there’s no point in meeting.″

Sheehy called Goldsmith’s offer to buy BAT for securities worth 13.4 billion pounds unattractive and opportunistic.

In its earnings report, BAT said its net income for the quarter ended June 30 totaled 297 million pounds, or $466 million, up from 244 million pounds, or $383 million a year earlier.

Sales rose 26 percent to 5.25 billion pounds, or $8.2 billion, from 4.2 billion pounds, or $6.6 billion.

BAT said it earned 489 million pounds, or $768 million, in the six months ended June 30, compared with 404 million pounds, or $634 million, in the same period a year ago.

Sales for the period rose to 10 billion pounds, or $15.7 billion, from 8.13 billion pounds $12.7 billion.

BAT is using what is sometimes called a ″just say no″ defense against Goldsmith. Securities analysts said they expected BAT had other ammunition besides its earnings record but would save it for possible use against a sweetened bid.

″They’re (BAT) keeping their powder dry for later on in the bid,″ said a London securities analyst who requested anonymity.

The securities analyst said, ″BAT itself is going to remain under a lot of pressure to unlock value to shareholders.″

There had been speculation that BAT might respond by breaking itself up, perhaps by separating its four main businesses and creating a new stock for each.

This idea, reportedly put forward by some BAT institutional shareholders, would get around the problem of BAT’s relatively slow-growing tobacco business pulling down its share price. Sheehy noted Monday that BAT has sold off underperforming businesses in the past and that ″it’s a continuing process. We haven’t called a halt to it.″

He said he had met with some of BAT’s institutional shareholders. ″They have indicated to us that they would not like the shares to fall, after all this is over, back to the undervalued situation of before,″ he said.

BAT is hoping that regulatory authorities will block the Hoylake bid. U.S. insurance regulators are studying the offer because BAT owns Farmers Insurance Group Inc. of Los Angeles.

In addition, 200 U.S. congressmen oppose the bid. ″We are encouraged by that,″ Sheehy said.

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